US Trade Gap Surged to $621 Billion in 2018, Highest in Decade

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The U.S. trade deficit jumped almost 19 percent in December, pushing the trade imbalance for all of 2018 to a decade-long high of $621 billion, the Commerce Department said Wednesday. The December gap jumped from the prior month to $59.8 billion, also a 10-year high and wider than the median estimate of economists.

The US is now locked in a trade battle with China over what it claims are unfair trade practices, resulting in tit-for-tat tariff increases on each others' goods.

With the exception of February 2017, every month of the Trump presidency has seen an increase in the trade deficit compared to the same month in the previous year. Even if he completes an accord to end the tariff war with China, substantially shrinking the deficit may prove tough as cooling global growth weighs on exports while domestic demand keeps driving shipments from overseas.

The two nations have imposed tit-for-tat tariffs on billions of dollars worth of each other's goods, roiling financial markets, disrupting manufacturing supply chains and shrinking U.S. farm exports. They also point to his renegotiation of Nafta as something that will help reduce the United States trade deficit in the long run. Simultaneously, US exports fell 1.9% as foreign demand for civilian aircraft and oil products declined.

As a repercussion of an additional tariff to United States goods, shipments of USA farm products had been slashed substantially in the past seven months.

A trade deficit occurs when a nation's imports exceed its exports. The goods deficit was a record. The report also showed the largest-ever gap with China, sitting at $419 billion.

The main long-term driver of persistent trade deficits since 1975 has been the gap between the US's low savings rate and its attractiveness as an investment destination, fueled partly by the dollar's role as the world's reserve currency.

The government reported last week that trade subtracted 0.22 percentage point from GDP growth in the fourth quarter. Washington, Europe and other trading partners say those violate Beijing's market-opening obligations.

Tai Hui, Asia-Pacific chief market strategist at JP Morgan Asset Management, said that while there were a number of hurdles to a final agreement such as on intellectual property rights, traders were broadly confident.

USA officials said a year ago the administration was considering sanctions against companies and officials linked to China's crackdown, including Xinjiang Party Secretary Chen Quanguo, a member of the Chinese leadership's powerful politburo.

New data shows that the trade gap between the U.S. and China widened a year ago by $43.6bn to $419.2bn as exports of American products and services fell, but imports from China rose.

"While Trump backed off on raising the tariffs on $200 billion in Chinese goods, the president was optimistic that he would be signing an agreement with Xi "'fairly soon, '" according to The Washington Post.

Morgan Stanley analysts noted that "easing on three fronts" globally - trade tensions, China's monetary easing and the Fed's flexibility and patience - were helping ease global financial conditions.